Apple Inc. (NASDAQ:AAPL) stock was up about 3.5% on Wednesday, a somewhat anticipated number that fits the company’s overall impressive earnings report for the fourth quarter of the fiscal year.
However, many believe that the stock is severely undervalued. In fact, Money Morning Capital Wave strategist, Shah Gilani, said on the FOX Business program “Varney & Co.” this morning:
“This stock is absolutely undervalued. They’re going to buy more shares, they’ve got so much cash. This stock is going to continue to grow.”
APPL stock is indeed surprisingly cheap currently. To get a better understanding of how cheap it actually is, you can compare its price-earnings ratio to that of its major rivals, Microsoft and Alphabet, where the first one’s P/E is 35.44 and the latter’s one is 30, while Apple’s P/E is just 13.63.
So obviously something’s going wrong here; but what is it, you ask?
Experts believe that there are two main issues related with Apple’s laughably low P/E ratio.The first being Cupertino’s dependency on the iPhone and the other is China’s current position, which is now Apple’s predominant source of growth.
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The majority of experts perceives the above as a major risk for Apple stock, as China’s unstable economy could be slowed down by exogenous factors, or consumers could shift their preferences from the iPhone to a more affordable substitute.
However, those experts fail to take under consideration a far more possible scenario, which involves China fuelling massive sales growth for Apple over the next few years.
Money Morning chief investment strategist, Keith Fitz-Gerald, pointed out that the perceived slowdown in China isn’t a sign of a failing economy, but the hiccups of a giant economy in transition.
“The Red Dragon has had the world’s largest GDP for 18 out of the past 20 centuries,” Fitz-Gerald said. “They will again as Chinese consumers set their sights on the things we take for granted in the West including homes, cars, appliances, electronics, travel, and education for their children.”
So come to think about it, things get a lot simpler. Bottom line is that, both middle classes in China and the U.S. are buying iPhones for the same reasons while, at the same time, the iPhone has a 44% share in the United States. The main difference is that China’s middle class is growing at a much faster pace.